Medicare spent $2.6B more than Costco on same generic drugs

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Medicare spent billions of dollars more on generic medications than Costco did for the same drugs, according to research published July 6 in JAMA Internal Medicine.

Researchers from the University of Southern California in Los Angeles compared the amount Medicare pays for common generic drugs in its Part D prescription coverage with the prices Costco offers its customers without insurance. They looked at 184 common generic medications bought by Medicare and Costco in 2017 and 2018.

The research team found that Medicare overspent by 13.2 percent in 2017 and 20.6 percent in 2018 compared to Costco prices for the same prescriptions. The overspending increased from $1.7 billion in 2017 to $2.6 billion in 2018.

Medicare beneficiaries don't directly pay this difference, as their median cost sharing was $1 for preferred generic medications and $6 for nonpreferred generic medications in 2018. However, Medicare spending is funded by taxpayer dollars and beneficiaries pay premiums.

"These low out-of-pocket costs mask the fact that Medicare overpaid on 43.2 percent of prescriptions for the most common generic medicines that year," the researchers wrote. "In comparison, Costco’s streamlined distribution system could have saved $2.6 billion on these 184 drugs. With generic medications accounting for 22 percent of Part D spending, eliminating generic overspending could significantly reduce beneficiary premiums and federal spending."

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